How Nashville's $5.2 billion proposed transit system would be funded

Calling it a necessary "investment in Nashville's future," Mayor Megan Barry on Tuesday unveiled a monumental proposal for a $5.4 billion mass transit system, the most expensive and complicated project in Metro history.
Wochit

Mayor Megan Barry is looking primarily to a local sales tax to fund a $5.2 billion transit system. Davidson County voters will have to approve the tax increase in a ballot referendum in May.

Sales tax revenue would comprise about 80 percent of the funds dedicated to transit in fiscal year 2019. Hotel tax, rental car tax and business tax surcharges, along with bonds and fare revenue, would also contribute to building and operating the system.

"It is important to me that we are equitable and fair with the taxes used to pay for transit, while understanding the need for a bold, comprehensive transportation system that will address Nashville's needs now and in the future," Barry said in a statement. "This is a balanced funding proposal that will ensure visitors and out-of-county residents who may use our roads or transit system will pay their fair share along with residents who will have access to better jobs and transportation options as a result of this proposal."

Sales tax increase

Under the mayor's "Let's Move Nashville" plan, a one-half percent sales tax surcharge would begin in July 2018 and would increase to 1 percent in 2023.

The current state sales tax is 7 percent and Metro charges an additional 2.25 percent sales tax for a 9.25 percent total. If the transit initiative passes, the sales tax will increase to 9.75 percent next year and to 10.25 percent in 2023.

City officials project that the new tax revenue dedicated to transit will generate close to $110 million in fiscal year 2019, with $90 million coming from the sales tax surcharge.

The city prioritized a sales tax because the funding method does not fall entirely on Davidson County residents, according to Metro officials. They cited a recent Nashville Area Chamber of Commerce study that found nearly half of sales tax collections in Davidson County come from residents who live outside of the county.

Hotel tax increase

A one-quarter percent hotel tax surcharge would graduate to three-eighths percent in 2023.

Nashville's hotel tax is currently at 6 percent, with half of the revenue dedicated to funding the Music City Center.

The tax would increase to 6.25 percent in 2018 and to 6.375 percent in 2023 under the transit funding plan. While the combined sales and hotel tax rate will be among the highest in the nation, city officials said they do not anticipate the increase harming the city's thriving tourism industry.

Rental car tax increase

The city would add a 20 percent surcharge to the existing 1 percent rental car tax, for a total 1.2 percent tax.

Business and excise tax

The business and excise tax would increase with a 20 percent surcharge. That means if a business pays $1,000 in business and excise taxes, it would would pay $1,200 under the proposed plan.

Bonds

The city would issue bonds as needed totaling about $2.5 billion.

Fares

Fare revenue would help cover operational costs.

Music City Center and the Nashville International Airport

Music City Center Authority, which operates the Music City Center, will be asked to cover costs for a transit center in the SoBro neighborhood. Similarly, the Metropolitan Nashville Airport Authority will pay for a light rail spur from the Murfreesboro Road and Donelson Pike intersection and the airport's transit terminal.

Additional transit plan details

The funding plan covers operations and maintenance costs for the next 50 years, as well as debt financing, and the new tax surcharges would end at that time period.

A downtown transit connection tunnel is expected to be the costliest part of the project with a $936 million price tag.

Expanding the current system and building a Gallatin Pike light rail corridor are the next largest items, at $807 million and $789 million.

The proposed tax surcharges are possible through the IMPROVE Act, passed by the Tennessee state legislature and signed by Haslam this year. The legislation allows local governments to collect surcharges on existing taxes if voters approve them through a ballot referendum.

A property tax was not included in the plan. In addition to being limited to residents, property tax rates are capped, the result of a 2006 voter referendum, and rates could not be changed without a new referendum. Pulling from existing property tax revenue would mean cuts to education, police or fire department spending, according to Metro officials.

Increasing a car registration fee was also considered, but because it is considered a more regressive tax that would only charge Davidson County residents, it was not included in the plan, officials said.